Question

I have the following information on 6 sets of two assets portfolios

Expected Return portfolio , Covariance , Correlation, portfolio variance, portfolio std dev. I have also calculated the risk adjusted return for each portfolio

If I had to make a recommendation to an investor what would I be looking for to minimize the portfolio risk ?

Answer 1

Recommendation to the investors would be as follows-

A. Investors should be trying to select such stocks which will be offering with lowest standard deviation as it will be representative of lower risk.

B. Investors should also trying to select such stocks in the portfolio who are having a lower correlation between them because a lower correlation will be ensuring a higher degree of diversification.

C. Risk adjusted return should also be considered and those portfolio who have higher risk adjusted return should be preferred.

D. Such portfolio should be selected which have a lower expected rate of return because expected rate of return will be calculating beta and beta will be representative of systematic risk so lower beta will be representative of lower expected rate of return.

E. Such portfolio should be selected which are having lower portfolio variance in order to minimise their risk.